A company on the stock exchange is facing a growing demand for their products due to economic activity picking up following the relaxation of Covid-19 lockdown regulations. The chief operating officer of the company is faced with a dilemma as he is looking to buy machines for their factory in order to ramp up production, and he needs to decide between two options.

Machine X is to be imported from China and does not have any spares locally available. Machine Y on the other hand is locally produced and its spare parts are readily available. The chief operating officer has decided to buy machine X based on the information below:

Machine X	Machine Y
Initial cost = R1,200,000	Initial cost = R900,000
NPV = R200,000	NPV = R70,000
Discounted payback period = 3 years	Discounted payback period = 4 years
Weighted average cost of capital = 10%	Weighted average cost of capital = 10%
Useful life = 8 years	Useful life = 6 years

When responding to this question it is essential to calculate the profitability index and the NPV to perpetuity as they are useful in your analysis. Qualitative analysis of the information is also a prerequisite.

QUESTION:

In your assessment, do you support the decision to buy machine X? Justify your answer with the relevant calculations and a qualitative analysis.